China tackles over-capacity issues

By Mark Godfrey

- Last updated on GMT

Proposal from China's Ministry of Commerce in Shandong calls for duty-free imports of live cattle
Proposal from China's Ministry of Commerce in Shandong calls for duty-free imports of live cattle

Related tags: International trade, China

One of China’s leading meat-producing regions has come up with a radical solution to fix the over-capacity problem in the local processing sector.

The provincial bureau of China’s Ministry of Commerce in Shandong has published a proposal calling for duty-free imports of live cattle to five beef slaughtering zones in the port cities of Qingdao, Weifang and Dongying – as well as two other as yet unnamed cities.

The bureau’s document, entitled ‘Policy Measures to Stimulate Stable Growth and Reform in Foreign Trade’, claimed that 70% of local meat processing capacity is idle – in large part because major processors are unable to find sufficient numbers of cattle. Currently before the central government in Beijing, the Shandong proposal also noted that local cold chain operators were often not ready to cope with large volumes of imported frozen meat. “It is better to be able to kill and chill the meat here in China, where it can be distributed.”

The document also suggested that such a move would eliminate the problem of ‘zombie meat’ and would ensure that “China gets a more stable, reliable supply of fresher meat”.​ By ‘zombie meat’ the document refers to shipments of outdated frozen meat – some of it decades old –` which was discovered by authorities after being smuggled from Vietnam. The discovery caused a scandal this summer in China, where demand has seen beef prices soar.

The proposal from Shandong’s commerce ministry isn’t too far-fetched: tax-free status has long been enjoyed by firms processing seafood for export in the region and around China. Various non-food processing zones are also able to import materials tax-free – as long as they are re-exported. Having been central to China’s ‘opening up’ in the 1980s, free trade zones (FTZs) are back in vogue as a way to trial economic reforms promised by current president Xi Jinping.

It is not clear, however, what tax – if any – would be applied to beef if it entered the domestic Chinese market. Indeed the document seems to suggest that the jobs and services created by the slaughtering-processing zones would be a sufficient reason to allow meat produced in the zones to be sold tax-free to Chinese buyers.

What also remains unclear is whether factories would have to be built from scratch within a certain zone or if firms operating in the zone could apply the tax-free status to their slaughterhouses elsewhere in Shandong. A key supplier of live cattle is Australia, which sells Angus cattle to China for beef purposes. China has also been edging towards a deal to import cattle from its northern neighbour Mongolia.

Related topics: China, Industry & Markets, Beef

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